What to watch for in advertising company earnings

NathalieTadena

With several of the biggest ad holding companies due to report their latest quarterly results next week, investors will be on the lookout for commentary on the big media accounts in play, any impact from ad blocking technologies and the health of the broader advertising market.

Omnicom will be the first of the group to report results on Tuesday, followed by Interpublic on Wednesday, Publicis on Thursday and WPP the following Monday. Broadly, the ad holding companies are expected to post organic revenue growth rates--which exclude foreign exchange fluctuations, disposals and acquisitions -- in the low to mid-single digits.

WHAT TO WATCH:

MEDIA REVIEWS: The advertising industry is about half-way through the rash of big media agency reviews. Some of the biggest contests -- including Procter & Gamble-- have yet to be decided. Several big marketers are evaluating their media agency rosters as they look to cut back on fees paid to agencies, find cost-efficiencies in what they pay for media and test their partners' digital chops. Investors will look for further color on the nature of the reviews in play and any notable impact from recent account wins or losses.

"Investors should not typically read too much into the consequences of any one or two or three large account changes, but when individual agency groups have more than several multi-billion dollar accounts at risk in the public sphere (and likely more in the private one) it's worth paying attention," Pivotal Research analyst Brian Wieser wrote in a research note Friday. Aside from Unilever's statutory review, Publicis and Interpublic have the most business to defend in the media reviews outstanding, Mr. Wieser adds.

ONLINE ADVERTISING WOES: Online advertising has enjoyed explosive growth as marketers look to keep up with changing consumption habits. Still, there's a laundry list of concerns about online ads keeping some advertisers at bay -- among them ad fraud, viewability and the transparency of online media buying. The rise of ad blocking technologies, fueled in part by the release of Apple's new mobile software that allows such apps, is just the latest headache facing online advertisers. Many industry executives have argued that better ads are the answer to the current ad blocking crisis, while the Association of National Advertisers Chief Executive Bob Liodice recently said the blame is on the cluttered digital ecosystem. The ad holding companies will likely weigh in on the opportunities and challenges they see in the online ad market.

Agencies have also become more involved in the discussion around media measurement, an area that remains a focus for advertisers. "As measurement migrates from TV ratings and digital page-views to a common measurement unit (most likely "impressions"), it will be nearly impossible for marketers to navigate this landscape without their agency, " wrote Telsey Advisory Group analyst Tom Eagan in a recent research note.

The world's largest ad holding company, WPP, has invested in the past year in measurement firms Rentrak and comScore, which recently unveiled plans to merge. WPP CEO Martin Sorrell has been particularly vocal about the need for an improved media measurement currency and has called the current measurement standards for online media "ludicrous."

HEALTH OF THE AD MARKET

The advertising companies will also provide a pulse check on the state of the global advertising market-- which has recently experienced a slowdown in China, Brazil and Russia -- and the flow of ad dollars across media channels. Ad holding companies provide valuable insight into the ad market because of the diversity of clients they serve and their agnostic position to media categories.

"We believe the healthy organic advertising trends have continued into Q3 and the companies will once again deliver robust organic growth, particularly in the U.S.," J.P. Morgan analysts wrote in a research note earlier this month. "New business trends have also proven to be less disruptive than previously feared, suggesting a positive tone from management on the calls with encouraging outlooks."

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